Tuesday, May 13, 2014

Orr to Lansing: 'Show me the money' for Detroit grand bargain

Detroit retirees could face cuts to monthly pension checks as high as 40 percent if the state Legislature fails to approve a $195 million one-time infusion of cash for Detroit, the city's emergency manager said today.

Orr was in Lansing this morning to address a newly formed state House committee, Detroit's Recovery and Michigan Future, on the 11-bill package that would authorize the state's contribution. Lansing's pledge is the last piece needed to allow a $866 million so-called "grand bargain" to move forward that intends to shore up the city's pensions and save the Detroit Institute of Arts' collection from a potential fire sale in bankruptcy court.

"Without this settlement make no mistake about it we would have to go back to the drawing board," Orr told the five-member panel.

During his nearly hour-long testimony, Orr said the city's currently proposed bankruptcy-exit plan, called a "Plan of Adjustment," would slash more than $9 billion in long-term debt. At the pace the city's historic bankruptcy continues to move, Detroit is on track to exit bankruptcy some time "later this summer or fall," Orr said.

By Orr's estimate, the numbers are drastic: Detroit police and fire employees who receive, say, $35,000 from their annual pension would be cut down to around $20,000 per year -- with no social security. For general retirees, an average $20,000 per year pension could go down to around $12,000.

Besides that, Orr said, the value of the Detroit Institute of Arts' collection would be dumped in a firesale. The proceeds from that would be split evenly amongst all creditors, not just pensioners, he said.

Among the lawmakers sitting on the panel, State Rep. Harvey Santana (D-Detroit) asked Orr the most pointed question about the feasibility of his proposed bankruptcy-exit plan: Does it take into consideration the potential loss of more residents in the city? Will Detroit be stabilized under the restructuring proposal? The city hemorrhaged nearly 25 percent of its population between 2000 and 2010, from over 950,000 residents to around 700,000 today.

Orr said the city's projections estimate a population drop to around 685,000 residents total by 2023, suggesting Detroit's numbers may have flatlined.

The state would distribute $194.8 million from it's rainy day fund to a newly created Settlement Administration Authority that would pay the city's retirement system if certain stipulations are met. The rainy day funds would be replenished through a $17.5 million annual payment from the city's tobacco settlement revenue fund.

Create a 7-member oversight commission -- which would include the governor and Detroit's mayor -- which could, among other things, review and approve contracts for goods and services exceeding $750,000 or those that exceed two years; approve or reject ll collective bargaining agreements and requests by the city to issue debt.

Require Detroit's mayor to appoint a Chief Financial Officer, subject to the approval of City Council and potentially the oversight commission, that would adopt a four-year financial plan.

Require that new employees starting in 2015 would receive a 401-k style plan, not a pension, and could not receive any retirement health care insurance. Neither of those provisions would apply under collective bargaining agreements ratified prior to January 1, 2015.

Prevent the Detroit Institute of Arts from renewing its 10-year 0.2-mill property tax to fund the museum's operations.

(If you've followed the development of the Grand Bargain and are unclear how the state's current $194.8 million pledge could match the previous $350 million pledge offered by Gov. Rick Snyder's -- it represents the present day value of the $350 million. Nancy Kaffer of the Freep has an explainer here.)

The committee is slated to meet again the next two days. The bills could be sent to the full House for consideration as early as next week.